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NovaStar Financial yesterday was forced to scrap plans to raise a desperately needed $100 million in stock after the subprime mortgage lender’s auditor cast doubt on its future.

One of the few players in the subprime mortgage sector to stay afloat, NovaStar said in a filing that it shelved the financing because it could not meet “certain conditions” with respect to the offering. The Kansas City, Mo.-based lender, which did not elaborate on what those conditions were, said it would slash its retail lending operations, shutting down offices, laying off workers and focusing on its $15.5 billion mortgage portfolio.

Adding insult to injury, NovaStar’s accountants at Deloitte & Touche demanded that a “going concern” clause – traditionally used to warn investors of the risk of bankruptcy – be inserted into documents related to the offering.

The shelved stock offering might leave an investor group that includes Jefferies and Company and insurance giant MassMutual out nearly $49 million. The two had invested that much in NovaStar convertible preferred stock on July 16 and stood ready to purchase more than $101 million in a subsequent offering.

According to the company, MassMutual and Jefferies refused to allow NovaStar extensions to certain key filing deadlines.

NovaStar has long been a battleground stock between short-sellers – who have argued that the lender’s stock price was unjustified given its business model – and a coterie of investors who argued that the company’s stock price was artificially deflated by naked short-selling.

Phil Saunders, one of the leaders of the naked short-selling crusade, even ran a NovaStar Internet fan club of sorts called NFI-Info.net.

In an interesting footnote, Howard Hill, one of the portfolio managers at MassMutual’s Babson Capital unit, was long one of the most prolific posters on several widely followed Internet message boards.

Although he quit posting when Babson – a 2 percent owner of NovaStar – hired him nearly two years ago, his detailed analyses of NovaStar’s prospects remained highly popular.roddy.boyd@nypost.com